Question about rights issues

My primary motive for investing is to grow a income portfolio but in the meantime I am using some trading to allow me to buy more stocks then I might otherwise be able to.

I have seen the opportunity to keep more of my trading profits by using rights issues to generate some extra money whilst also making a capital gains loss which allows me to keep more of my trading profits.

essentially I recently became entitled to buy 18000 AWC shares for $1.
I sold that many for $1.40 and am waiting to buy them back in the rights issue.

Any input on this strategy. The way I see it the only down side is that I will pay greater capital gains on the shares I bought in the rights issue in the future.
However I don't plan on selling my long term shares so this does not concern me.

Is there some other down side I haven't identified.

RamonR said:

My primary motive for investing is to grow a income portfolio but in the meantime I am using some trading to allow me to buy more stocks then I might otherwise be able to.

I have seen the opportunity to keep more of my trading profits by using rights issues to generate some extra money whilst also making a capital gains loss which allows me to keep more of my trading profits.

essentially I recently became entitled to buy 18000 AWC shares for $1.
I sold that many for $1.40 and am waiting to buy them back in the rights issue.

Click to expand...

Sounds like your doing a bit of washing?

http://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR20081/NAT/ATO/00001

https://www.aussiestockforums.com/forums/showthread.php?t=9866

I does sound like washing.
Thanks for the links, however my main reason for doing it was the $7007 I would be better off.

The tax benefits where just a nice little bonus, hopefully this is enough to distinguish it from washing.

RamonR said:

I does sound like washing.
Thanks for the links, however my main reason for doing it was the $7007 I would be better off.

The tax benefits where just a nice little bonus, hopefully this is enough to distinguish it from washing.

Click to expand...

I thought it was the tax benefits that made it washing....other wise why would the ATO give a hoot?

Ramon R,

i am pretty sure the ATO will treat your disposal at 1.40 as a CGT event, if you had them for more than 12 months and you will have to pay the tax in the current year and not in the future. if you had them for less than 12 months then that CGT will not be subject to 50% discount.

The price you pay for the new shares $1 will become your base cost to take into account if you dispose in the future. if you had kept your original share then simply the sum you paid for both divided by the quantity will give you the base cost per share, but in your instance these are to separate CGT events and have to pay CGT in the current year on the disposal of the first lot. you might want to check yout your accountant. i don't thin the washing provisions will apply as this is mainly for benefiting from a loss cristalised via disposal. you did not make a loss. and don't have a tax benefit in this situation.

I did take a loss on the aforementioned transaction.
Average price per share was $3.

Hopefully it won't be seen as washing, but thanks to wisdom contained within these forums I will be starting a trading diary which highlights how through the above transaction I was able to plough more money into bank shares increasing slightly my income from dividends

Part IVA states that the 'predominant purpose' must be tax reduction...

The main purpose of this is that there is a financial benefit...

You don't need to worry about the washing rule...